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Asked by Anonymous

Asked on 30 Dec 2019

What is the best way to start saving?

I really need to control my spending and now I owe over 10k in credit card debt. I earn 7.3k / month but need to set aside almost half for mortgages. HELP!?

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Takingstock @
Takingstock @
Level 6. Master
Updated on 30 Dec 2019

Stay calm, if you make 7.3k and owe 10k, I would say the situation is still manageable. Really, I have been dealing with cases of friends who owe more than 6 months of their salary on credit card.

If I put myself in your shoes, I would do this

1) cut all credit cards so that you stop using it.

2) find a way to lower the interest rate... I just checked the unsecured loans from posb / ocbc can be as high as 21% per year, so its only a little better than credit card interest of 26% per year. - If you havent activated using cpf to pay the home loan / mortgage, it might be the best alternative - paying 2.5% is a lot better than paying 26%. if you are paying for the mortgage with cpf and still need to cough out half your pay, clearly the house is way beyond your means. - if you dont have a kind family member willing to lend you the money to pay off credit card, you probably have to find the cheapest loan around (but that might not be easy) - you might have to check around but ask the bank what charges apply, whether the interest is compounded daily, and if you meet all the criteria, what is the total fees / charges / interest to be paid altogether if you want to pay within 1 year... It would be good if that's less than 1k a year, but if its 2k or more, it not much better off than the credit card (2k / 10k) is still 20% effective interest rate.

3) just doing a sanity check here, it would seem that 7300 is your net take-home pay (or is it 7300 -1200 = 6100?) the former seems more likely since it would pass the debt servicing ratio for the bank to lend you mortgage in the first place. So I would go with that. Are you paying for the mortgage alone, and not with your partner? Using half your income to service a mortgage is rather straining... I am still struggling to figure how you passed that debt servicing ratio thing, but the house is probably too expensive for you. In the long run, thats gonna be something you will need to address because the issue will likely come back to you. I would think 40% of your take-home pay (= 2920), would the maximum you can comfortably afford to service the mortgage.

4) 730 (10%) - 1095 (15%) should the range that I would figure to make monthly payment back to the credit line (after denying the credit cards). Assuming you dont get a credit line, mthly interest on the credit card is about 200. If you paid 730 to it on time (and not adding further spend on it), monthly principal paid = 530+, and you could clear it in about 20 mths. If you could do 1100 per mth, then monthly principal paid down would be 1100 - 200 = 900, and you could clear it off in 11 mths or so assuming no further new spend on the credit card. try to aim for 18 mths or less which is moderately long already.

5) you will need to find ways to cut your spending to squeeze out the 730 - 1100. Seriously. Cut extra mobile phone charges, sports channel, netflix, shopping, travel, eating out, or even cars. You cant get out of this easily without going through some austerity.

Personally I think the main issue is you got a house that you cant afford anymore. You will need to look and think (long term) if you might need to downgrade. While I dont expect interest rates to go up in 2020, with where you are at, probably another 0.5% increase in interest rates could push you over into foreclosure.

Here's a list of usual culprits that you might need to cut or put off for a really long time:

A) having a house that's too expensive for you

B) owning a car

C) gambling or women

D) travel or shopping

E) loss of income from job downgrade / loss

I do think (A) is most likely but the others could be contributing factors.

Other helpful points to address spending issue:

I) set up a spending bank account which you have atm access. Your salary stays in your main account, and you only transfer 730 (10%) or less to this spending account which is your allowance. Cut the atm access off everything else. You can only spend within your allowance.

II) lower the ongoing interest costs.

III) cut the bad habits and replace with better / lower cost ones. You clearly cant afford to keep them up anyway.

IV) make more money (but you are already drawing quite a good pay, which I dont think you can get paid overtime for).

V) find some stuff to sell, but in this case, I still would ask if that might be your house. You will eventually run out of things to sell, but the key priority is to clear the debt and spend within your means.

Hang in there.

Note: I put in the credit line option coz you wont qualify for debt consolidation loan that has lower rates. You can only qualify for debt consolidation loan if you owe at least 12 mths of your salary, which you are not so bad yet. The serious cases start from owing more than 12 mths of your salary which the only easy way out is applying for voluntary bankruptcy.

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Question Poster

30 Dec 2019

And point no 4 is SUPER helpful
Takingstock @
Takingstock @

30 Dec 2019

I see. So if rent is the problem, consider sharing rent / apartment with a few friends. That could easier bring rent to below 1000, and give you the cash to help towards paying the credit card off

Firstly, we need to have a complete understanding on our cashflow. Through this process, we will understand our earning ability and spending habit. Here is a guide to help you: https://www.blog.pzl.sg/understanding-your-personal-cash-flow/

Next, create a budget that is capable of helping you to save up for the future. The best way to do this is via automation and this is how I do mine: https://www.blog.pzl.sg/how-to-create-a-monthly-budget/

Thereafter, make use of your budget to pay off your credit card debt as fast as possible. In fact, set that as your most important priority. This is because it has one of the highest interest rate per annum. Therefore, great emphasis should be spent on clearing it off.

Here is everything about me and what I do best.

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Question Poster

30 Dec 2019

Thank you! I will definitely have a read of both links.
Pang Zhe Liang
Pang Zhe Liang

30 Dec 2019

You are most welcome. If you need my help on cashflow planning, drop me a coffee invite: https://www.work.pzl.sg/#coffee